The insurer would be on the hook for tens of millions of dollars in bond payments if the city wins permission to eliminate the debt.
On the good faith test, Assured and the other bond insurer in the case, MBIA Inc. unit National Public Finance Guarantee Corp., claim the city wasn’t serious about striking a deal during months of pre-bankruptcy talks required by California law.
Franklin’s subsidiary, Franklin High Yield Municipal Fund, and Wells Fargo Bank NA filed court papers saying they support the objections of Assured and National Public Finance.
The city never held talks with the California Public Employees’ Retirement System, or Calpers, which provides retirement plans for city employees. The biggest U.S. public pension fund refused to negotiate with Stockton, claiming that under state law it isn’t authorized to reduce the city’s contributions to the fund. Klein said today that Stockton didn’t have an obligation to negotiate with Calpers.
The city is slated to stop paying for retiree health care on June 30 as part of a spending plan the City Council approved in June, citing a $417 million unfunded liability. The benefit had allowed workers employed as little as a month to receive city-paid health coverage for life, for both the employee and his or her spouse, Bob Deis, the city’s manager said.
Stockton’s unemployment rate was 18.7 percent in January, almost twice the state jobless rate of 9.8 percent, according to the California Employment Development Department. The national unemployment level that month was 7.9 percent, according to U.S. Labor Department data.
Born in the Gold Rush, Stockton struggled for decades, relying on tax revenue from farming and shipping at its deep- water port on the San Joaquin River. A housing boom in the early 2000s brought a surge in revenue as homebuyers, seeking refuge from soaring prices in San Francisco and Silicon Valley, flocked to Stockton, where starter homes cost around $400,000.
The city used the increase and issued debt to build a gleaming new arena and ballpark on its riverfront, and buy a new City Hall it later couldn’t afford to occupy.
Last year, the Stockton metropolitan area had the highest foreclosure rate in the U.S., affecting one in every 25 homes, or almost three times the national average, according to RealtyTrac Inc., an Irvine, California-based data provider.
In February 2012, Deis announced the city was on the verge of insolvency from mounting retiree costs, the recession and accounting errors that overstated revenue. A month later, the city began three months of talks with bondholders and labor unions that failed, prompting officials to seek bankruptcy.